중국에 있는 의미심장한 발자국이 다국적 회사를 위한 세계적으로 전략 명령이 되었다 있는 것은. 매력은 제품, 서비스, 자본 및 기술을 위한 중국의 겉으로는 탐욕스러운 수요이다. 조지 D. Benson Faegre & 중국 연습의 마틴, 협동자 및 의자는, 중국에 있는 현재 취득 붐을 때문에 그가 외국인 투자 동향의 논리적인 최고점 보기 처음으로 관찰한 1990 년대 중반에 있는 상해에서 실행할 때. 마틴은 계속하는 이 M&A 동향이 예상한다. 그러나 장래 몇년안에, 그는 조언한다, 중국을 포함하는 월경 M&A 거래의 사 측에 다만 외국인 회사가 아닐 것이다.

2001에서 세계 무역 기구 (WTO)에 중국의 취득은 외국인 투자에 새로운 분야를 열고 그 투자 구축에 많은 금지를 삭제했다. 그 결과로, 중국 이른 투자자 중 유행한 합작 투자는 약해졌다. 다국적은 그들의 협동자에 대한 cross-cultural 통합 그리고 조작상 문제를 인정했다. 처음에, 외국 기업으로 전체로 foreign-owned 기업의 설립에 지도된 중국의 시장 개방화로 결합된 이 현실화는 그런 문제가 그들의 자신으로 greenfield" 개시 가동 "피할 수 있었다는 것을 납득되었다. 이 입증되는 진실한 a frustrating 그리고 용납하기 어렵 느리 과정인 위하여, 많은 회사 유기 성장을 찾아내는 동안.

중국에 있는 사업을 위한 적극적인 계획을 그들의 경쟁자 에의한 그리고 그들의 전역 연산의 이 시장에게 더 뜻깊은 분대 하는 것을 결정하는 직면하는 판매 위험에 더 안락한, 미국을. 다국적은 중국에 있는 M&A를 얼싸안았다. 모험, M&A의 자유로운 중국에 있는 전략 성장을 달성하기 위하여 제일 방법인 것을 입증했다. Martin cites statistics indicating nearly 300 cross-border acquisitions of Chinese companies in 2006, up 16 percent from the year before; and M&A volume is up even more in 2007. Yet, achieving critical mass is not simple. Most acquisitions are small by developed market standards—a systemic challenge in China resulting from local companies operating in highly segmented and regional markets. Because of this, “foreign investors need to complete more deals for significant market penetration,” Martin says. “That means having a greater deal flow. The challenge is that buyers are largely on their own in finding targets. Investment bankers in Greater China tend to be focused on capital markets and only the very largest M&A deals.”

Thinking Holistically

“Acquisition targets in any emerging market usually have poor financial controls, inadequate record keeping, spotty regulatory compliance and a history of questionable business practices,” Martin cautions. “Buyers can also face very real cultural hurdles in obtaining full disclosure during diligence and in getting local managers to accept the ways of their new owners.”

Martin believes, however, that thorough and realistic integration planning makes it possible for U.S. companies to achieve success with their new businesses in China.

Dave Sampsell, associate general counsel for Minneapolis, Minn.-based ADC Telecommunications, Inc., agrees. Sampsell has worked on acquisition and joint venture transactions around the world for ADC, a global provider of network infrastructure equipment and related services. He found that analyzing and negotiating an acquisition in China involves a range of issues either unique to China or more sensitive than they might be elsewhere.

“Above all, you need to think holistically about how to structure the purchase and how you will address diligence issues you uncover relative to the impact on future operations, including any ongoing relationship with the sellers of the business,” he says. “Obviously this is important in any deal, but the legal, cultural and language differences between the United States and China really heighten the importance of thinking not only about legal solutions to issues but the business impact of those solutions.” This involves deliberate fact checking during diligence, heightened attention to relationship-building and careful consideration as to how acquired operations will be overseen and integrated.

Love It or Leave It

The good news is that the number of viable targets in China is increasing. State-owned enterprises are being privatized and early investors in Asia are divesting to realize the rewards of their early market entry. But, “expect intense negotiations over price,” Martin warns. “The strategic imperative driving interest in China drives up valuation. In addition, local management is often pressured by their shareholders to explore an IPO on one of the booming Chinese stock markets. And, there are financial investors emerging on the scene.” As a result, Martin has seen instances where acquiring companies paid multiples of 12 to 18 times EBITDA—significantly higher than current valuations in the United States in comparable industries.

Martin recommends that buyers emphasize their strategic value. “Chinese companies are highly motivated by the prospect of absorbing international best practices, worldwide branding and distribution, and accessing the deeper pockets of a strategic foreign buyer to help with expansion,” he says. At the same time, Martin cautions that Chinese owners take great pride in the companies they have built and may be reluctant to change their ways post-closing. “If the management of an acquired company does not embrace the new ownership culture within six to nine months of closing, it never will. The best solution is to part ways, cut losses and move on,” he asserts.

Look Before Leaping

The challenges associated with buying and operating a business in China make exhaustive legal and financial due diligence essential. Sampsell recalls, “It was impossible for us to do all the diligence ourselves. First, we don’t have many people who read and speak Mandarin, much less in areas of needed expertise.” He says that ADC invested more than a year negotiating and structuring a recently announced acquisition, relying on a multilingual team in China that included Faegre & Benson as outside counsel and a global accounting firm. ADC also retained a market research firm to verify the target’s market assessments and business plans.

Even so, risks can’t be avoided entirely. Martin says that a buyer can mitigate those risks, however, by positioning its own managers to at least initially control finances, protect intellectual property and oversee operations. He also adds, “Being prepared to make a quick change is imperative.” For example, under PRC law, the chairperson is the company’s “legal representative”—a role with significant power. Martin recommends installing your own designee as the new chairperson to allow for swift action if problems occur. Still, reliance on expatriates is not a longterm solution. Martin recommends a transition period of no longer than three years, during which expatriates train local successors.

The Payoff

The frenzy surrounding China can be intoxicating. This is an exciting market, with many competitors hunting for the same targets. Committing to the market and engaging with a fully dedicated team is important. But, Martin notes, “the most successful buyers look at many deals, carefully choose which to pursue, undertake exhaustive diligence, make realistic valuation and risk decisions, and instill strong governance, with ongoing training and oversight of local management.”

Those who do so will find ample rewards in China for many years to come. And, they will be better positioned to fend off their rapidly emerging Chinese competitors, whose commitment to globalization—with increasing means to achieve it—will soon add additional buy-side pressures to this dynamic market.

George D. Martin is a partner and chair of theChina Practice at Faegre & Benson LLP, which maintains a foreign law office in Shanghai.

Dave Sampsell is associate general counsel of ADC Telecommunications, Inc.

This is article was previously published in the January 2008 Edition of Counsel to Counsel Magazine